Go to all the debts and see which you can refinance to get to the lowest interest possible to cut down your monthly expenses and thus increase your cash inflow from there as far as your question on Which debts do you tackle first? I’m immediately gonna go to the highest paying interest statistically, that will actually reduce your interest cost as opposed to paying off the lowest balance first, and then also I’m looking at what the depth of… Today, we got dug. Abel here from Pittsford, the Pittsburgh investor. Thanks so much, greening on the show, man.
Absolutely, thank you so much for the invite. I appreciate and hope we can not some value to your audience here.
Absolutely, so today we’re gonna talk about finance first, and that’s gonna be a three-part series that we’re gonna go through, we’ll do the finance, then we’ll do some business stuff, and then some real estate at the end for all you hustlers out there. Doug is a big player here in Pittsburgh, tell us a little bit first about what it is you do so that people can kind of understand that… Yeah, so simply put, I am a financial advisor as well as an investor as far as more micro-break down of what I’m involved here in Pittsburgh, one of a full-service financial firm, so we handle pretty much anything with a dollar sign for clients and businesses.
Sure. Investments, budgeting, planning, tax strategies. And then on the real estate side, I do have a real estate portfolio. I own some mortgage notes that I’ve loaned on, I’ve done flips, I’ve done sales, I have a notary license to actually perform closing as well, so in what takes up the majority of my day? I do also do some consulting on the side for people trying to build businesses and looking for guidance on marketing and videography as well, sounds like your real busy… The goal is to be busy now, so the money works, and then I don’t have to be this new… Yeah, that totally makes sense. So for the listeners, because the segment here is about finance, where do you think that people should do start in understanding finance now, there’s a lot of stuff out there, there’s a lot of different coaches and gurus, and what your parents say and what your teachers say, Where should somebody start kind of middle the pack, they’ve been working for a few years and they’re thinking about financial planning, and in getting their Finders is… Right. Where do they start?
So the first thing is to out what’s best for you, especially when it comes to just getting involved in investing in general, which is normally what people think of when they think about their financial management. The one common mistake I see with so many people is that they watch a YouTube video or they see a friend making money, or a family member does this, and they’re successful, and they automatically just wanna copy those money-making activities. The unfortunate part is everyone’s different, so it’s pretty crucial to kinda figure out what’s your skill set, and then focus on that, and what I mean by that is, there’s so many different ways that you can invest and manage your money, anything from literally short-term savings to investing in debt securities, to real estate, to real estate investment, trust, stocks, mutual funds, there’s just unlimited ways that you could put money to work to benefit your future, and the first thing I would always say is to understand what your skill at as well as what you enjoy, because it’s definitely difficult to take the time to learn all these topics, so if you don’t like what you’re doing is just like anything… Yeah, you’ll maybe stick with it for a couple of weeks, but then after that, you’re just gonna probably let it sit to the side, so I would say step one is to understand yourself, what you’re good at, and then what you actually enjoy learning about, and then from there, it just comes down to actually putting a plan to place, so budgeting was gonna be number one, making sure that you have a significant amount of cash set aside that when life happens, which unfortunately people don’t think about the bad things in life, but you should always protect against things like losing a job or business failure, getting sick, issues with the family, whatever it may be, you wanna make sure that you have a nice safety net, a cash to protect against that. Once you get to that point, that’s when I would start suggesting that people look into those different investment vehicles to actually generate that wealth or that come, so that they’re not 100% dependent on that 9 to 5 job or working seven days a week for their business.
Yeah, that seems like great advice, so if we kind of roll it back a bit and look at what maybe the average American has… They’re usually debt involved. And those debts, if they are, come in the form of three different things, it’s usually student or educational debt, there’s credit card debt, and then their home or mortgage debt… Right.
How aggressively should they go after those debts before they build this kind of savings account and then move on to the investment, so like what order should they tackle those debts in?
So I would always suggest that the cash comes first, at the end of the day, if you have enough liquidity and savings, you can kinda make a few months debt payments if life goes horribly wrong, so the first thing is always your reserves, you wanna make sure you have that at net and just from a mental standpoint, knowing that you can get through a couple of bad months just makes you feel a little bit better and less stressful, but as far as the debt… So you’re 100%, right?
So most, especially younger people, you’re pretty much guaranteed to have school loans, people are now… You said middle of the line, they’ve been working for four or five years, maybe they’re getting married or having kids, and they’re thinking about buying a house, and obviously you’re gonna take on a mortgage for that, so that’s gonna be involved, and then last would be anything from auto even credit comes into play. Credit cards, my first thing on the debt is I wanna know what is the debt actually on, meaning what’s the collateral, so does that mean it’s on a property and investment property of business, your school loans, credit card, whatever that is. That’s really important because, for instance, with credit card debt, a lot of times you’re gonna be paying about 16… Even up here is a 20% interest, even if you’re crushing it with an investment or your business, it’s almost impossible to fight that 16 to 18% interest coming against you each month, and then also the same thing with a business or a property, if it’s something that can produce income for you or appreciate in value. I’m okay with having that debt because it’s actually on a solid asset, it’s not something fighting against you generally, so that’s the first step is what is your debt actually on, is it something that can benefit you in the future or is it something that’s gonna drag you down, and then the next thing I would look for is what are the different interest rates, can you shop around and reduce the interest rate on your school one or your mortgage or the car, even dropping in just a couple of percent interest… It’s on 100000 loan that could be hundreds of dollars a month, potentially, that was just a straight expense that now is gonna be increasing your cash flow.
Right, right. And that’s probably a good place for a lot of people to start, like we said, people maybe under 30 that have at least one degree, sometimes two or more degrees, they probably have acquired a large sum of debt in the educational system, and if the ref… Those loans, that’s probably a good place to start to drive that number down, especially if you have five different payments, you took it over multiple periods of time and you consolidate those loans in a way that makes sense, or at least get down to one payment or a better interest rate. So I think that those are all good points.
What about individuals with… They’re attacking their student that no problem, they’re renting currently, what’s your financial advice on switching from a rental into a mortgage, actually purchasing a property, what… What are your thoughts there?
So I honestly don’t have a concern with renting, I think that buying a home should come after a certain amount of things are checked off, one being that you know where you wanna live, you’re totally stabilized. You say like, I love this area, I plan to live here for the next five to 10 years, if you’re gonna hop around or maybe get a new job somewhere, or might need to sell that property quickly, I am completely fine with renting over one.
The second thing that comes into play is How much money do you have to put down as well as how much liquid savings do you have in reserves? The thing that people don’t consider with home ownership is when you own the home, you’re in charge of every single cost whether you like it or not, so besides the property taxes, which people don’t consider, the insurance is the interest on the mortgage you have to pay for, if something happens with the plumbing roof goes back, those are all big things that are gonna cost money that if you’re renting, you don’t have to take care of those costs, in fact, a lot of places, you don’t even have to pay for water and sewage, which is a monthly bill, you can save… The next thing is how long you’re gonna be there is to consider how much money you would wanna put down. So for me personally, if I’m ever gonna buy a property, whether it’s for myself personally or for an investment, I require at least 10 to 20% equity in the hub, and for anyone who doesn’t understand what that means in plain English, basically it means it a house is worth 100000? I would want either to buy the house for 800 to 9000 or would have to require that they put down 10 to 20000 in order to buy that house.
And the reason I do that instead of suggesting that people take on these 3% loans or even some crazy, like 1% down loans is, again, if you need to sell that property or something happens, if the market value goes down even a little bit, you’re gonna literally have to bring money to sell that house, and two is people don’t understand the closing costs for a transaction, it’s probably about 70 to 10% of the purchase price, so if you… Let’s say by house for 100 grand, you put down 3000, that means you will only have 3000 of equity basically in the home, and let’s say next year, you lose your dog or you find out you’re moving across the country and you can’t afford two places and you wanna sell this house, you’re gonna have to probably bring… If you’re lucky enough to get another buyer to buy it at 100000, you nave to bring in grand to the table just to pay for those costs to actually sell that house.
So that’s the… That I think that people overlook is, if you need to leave quickly, it can actually be harmful to own that property, but then vice versa, if you do plan to stay there for a long time, you have some cash reserves, you have money to put down 100% it makes sense to buy a house, ’cause then you could start building that Equity and actually gaining an asset… Right, right. And that probably makes sense to… You’re definitely right in the fact that people don’t think about those extra costs, if you’re looking at cash flow monthly and you say you have 500 gross monthly and you have 1000 rent payment, there’s no way for that same property, you’re gonna have a 1000 mortgage payment right. Once you add all that stuff in, and that’s just assuming big monthly cash flow.
Exactly, that’s the thing. People see, the mortgage principle… Yeah, the mortgage principle might be 6-700 bucks, and I said, Oh, that’s way better than renting, but when you include some taxes or four grand a year, three grand a year, that’s an extra 300 bucks a month, and then you have the insurance and then you have all the utilities and upkeep and things like that, which isn’t a problem, if that’s the end goal, but it’s just cost that I think a lot of people don’t take into consideration, and then that’s when they can get to the issue of, Hey, we can’t save any money or, Hey, we’re wondering how bills are gonna get paid because our cash was diminished more than we thought… Yeah, absolutely. And what are your thoughts on cash flow versus total cash… Now, a lot of people talk about how much they got in the bank and all that, but I think at the of the day, cash flow is probably the most important, if you’re looking at even not even in the investment vehicles, but just cash flow in a day to day managing your debt, your payments and all that, do you value cash flow more or do you value total asset more… That’s a tough one, ’cause I guess they’re kind of two different concepts for me personally, I would be feeling more comfortable knowing that I have a bunch of cash set aside, so that would be the cash reserves, I guess I would find more important because even if times are tough for six months, I’m like, Okay, I could take care of things and kinda keep living that same standard of living, but long term, the cash flow is gonna be really what determines if you’re gonna be well off or just kinda getting by, ’cause if you have an extra 50 grand a month, and then something popped up and it’s five grand that month, you’re like, Oh, it was a crappy month, but I got another five coming in next month, and then the next month or the next month, so they’re kind of two different conversations but if you’re asking me today, what would be more important to me, I’d probably say the reserves, just ’cause I know that I can get by at times are tough.
Sure, yeah, that totally makes sense. And I think a lot of people, if you look at some of these stats I see rolling around online, when they do a little research that they talk about how a 500 expense that pops up, the average American family can’t even afford to cover that without some type of debt, either credit card or in reserve payment, and that’s 500 bucks. It’s not even 5000 you were talking about, right? So losing a job and having a mortgage payment is gonna be something that’s super troublesome for those people, which is why renting, like you’re saying, is probably a safer place, ’cause you know your cash flow is very consistent, and even if you do have a bad month, it’s probably less than owning that home when you have a 20000 roof, you need to do…
I had a… That’s the biggest thing, right? I agree with you 100% there. So as a recap for our microfinance session here, where do you think people should spend their money first, they have a little credit card debt, they have a little like a, let’s say a home debt, ’cause they got the mortgage and they have a little bit of care plus their student loans, what should they attack first, and how should they go about attack in that… Sure, so if you’re looking at your finances from 100 feet up and you’re looking at everything and how it kinda works together, my very first thing is gonna be good yourself to at least four to five months of your expenses in cash, ’cause that… Like I said, that’ll get you through on a conservative basis, that’ll get you through a lot of down months, so that’s check number one, then the next thing would be to go to all the debts and see which you can refinance to get to the lowest interest possible. To cut down your monthly expenses and thus increase your… Your cash in flow from there as far as your question on which… That’s do you tackle first?
I’m immediately gonna go to the highest paying interest, statistically, that will actually reduce your interest cost as opposed to paying off the lowest balance first, and then also I’m looking at what the debts on… So for me personally, I have debts on real estate that produce income and appreciate and value, so I don’t really care to necessarily pay those down as quickly as possible, whereas if I had a credit card bet of 10 grand and it was 18%Annually, I’m gonna attack that as quickly as possible. So it’s gonna be the higher interest that’s in the debts that aren’t on an actual asset.
Once you get to that level, I feel like you kinda have a solid foundation where it’s like a blank canvas and you just start painting right, where do you wanna start investing this money, where do you wanna start growing your real wealth, and then that comes down to… Really, you’re gonna have a couple of options, one is the financial markets, the next is gonna be real estate markets, and then last is gonna be actually investing in businesses, so I always suggest the financial markets first because one, they’re liquid and accessible if you need to click a button and cash out, you can literally do that. Even if it requires a lot.
The other thing is, if you don’t know what the heck you’re doing, there’s people out there, there’s educational programs that they can actually manage the money for you for a small fee, and then that way it’s essentially out of sight, out of mind that people take care of it that you trust and you’re still reaping the benefits to grow in that wealth, whereas when you get into things like real estate or owning a business, you kinda have to be hands-on and really understand that they also aren’t liquid, meaning you can’t turn them to cash quickly, you can’t click a button and turn a property, the cash, if you need money tomorrow, you can’t just automatically sell out of a business the next day in.
So that would be kind of my steps to getting to that point where their foundation set and that they’re really making an impact on their long-term goals.
And if somebody wanted to get some money management or some advice, how would they actually reach you, what would be the best way for them to get a contact of you, whether they’re in Pittsburgh or someone that would fit kind of your market, how would they reach you?
Yeah, so social media is completely fine, I have pretty much any account online, Danone everyone, they just done me a message or I put up a ton of free content as well to follow along. We also have a website, Sterling Heights financial dot com, where you can actually book meetings right online at your convenience. I felt numbers on their email, pretty easy to contact me if you search me on line… Sure, absolutely. Thank you so much for this session on finance… No, absolutely, I appreciate this. And hopefully that some people can find some value in this and get their financial financial Bill… Start strong here in 2020.
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